Why Investors Should Act on These 2 Utility Stocks Now

Understanding the Importance of Earnings and Earnings Surprises

Earnings are often considered the most critical metric in a company’s quarterly financial report. While Wall Street analysts and investors closely examine various other indicators, such as revenue growth, profit margins, and management guidance, the earnings per share (EPS) figure tends to cut through the noise and provide a clear snapshot of a company's performance.

The actual EPS number is crucial, but what matters even more for investors is whether the company beats or misses its earnings expectations. A significant positive surprise can lead to a surge in stock price, while a negative surprise may cause sharp declines. This makes it essential for investors to pay close attention to these earnings surprises, as they can have a substantial impact on investment returns.

The Zacks Earnings ESP: A Powerful Tool for Investors

One of the most effective tools for identifying potential earnings surprises is the Zacks Earnings ESP, formally known as the Expected Surprise Prediction. This tool provides insight into how analyst estimates are being revised before a company releases its earnings report. The logic behind this approach is straightforward—newer estimates are often based on more up-to-date information, making them more reliable indicators of what to expect from the company.

The Zacks Earnings ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate. The percentage difference between these two figures gives the ESP value. This metric helps investors identify stocks that are likely to beat or miss their earnings forecasts.

According to historical data, when investors combined a Zacks Rank #3 (Hold) or better with a positive Earnings ESP, stocks had a 70% chance of delivering a positive earnings surprise. Moreover, using these criteria has historically generated an average annual return of 28.3% over a 10-year period.

How Zacks Ranks Work

The Zacks Rank system categorizes stocks into five levels: #1 (Strong Buy), #2 (Buy), #3 (Hold), #4 (Sell), and #5 (Strong Sell). Stocks ranked #2 and #1 are expected to outperform the broader market, with Strong Buy stocks typically showing the strongest performance. Approximately 60% of stocks fall into the #3 (Hold) category, meaning they are expected to perform in line with the market.

For investors looking to capitalize on earnings events, the Zacks Earnings ESP filter can be a valuable resource. It helps identify stocks with the highest probability of delivering positive or negative surprises, allowing investors to make informed decisions before earnings reports are released.

Sempra Energy: A Strong Candidate for Earnings Season

Sempra Energy (SRE) is one stock currently meeting the criteria set by the Zacks Earnings ESP filter. It currently holds a Zacks Rank of #2 (Buy), indicating strong potential for outperformance. SRE's Most Accurate Estimate is $0.84 per share, just one day away from its upcoming earnings release on August 7, 2025.

The Zacks Consensus Estimate for SRE is $0.83, resulting in an Earnings ESP of +0.60%. This suggests that the company is likely to deliver a positive earnings surprise. SRE is part of a larger group of utility stocks with positive ESPs, making it a compelling option for investors looking to take advantage of earnings season.

Xcel Energy: Another Strong Option

Another stock worth considering is Xcel Energy (XEL). Currently holding a Zacks Rank of #3 (Hold), XEL is preparing to report earnings on October 30, 2025. Its Most Accurate Estimate is $1.43 per share, compared to a Zacks Consensus Estimate of $1.38. This results in an Earnings ESP of +3.07%, indicating a strong likelihood of a positive earnings surprise.

Both SRE and XEL demonstrate the potential of using the Zacks Earnings ESP filter to identify stocks that could benefit from positive earnings surprises.

Finding Opportunities Before Earnings Reports

Investors can use the Zacks Earnings ESP Filter to uncover stocks with the highest probability of positively or negatively surprising the market. This tool allows for strategic buying or selling before earnings reports are released, providing a competitive edge during earnings season.

By leveraging the Zacks Earnings ESP, investors can make more informed decisions and potentially boost their returns. Whether you're looking to buy or sell, the Earnings ESP Filter offers valuable insights that can help navigate the volatility of earnings season.